McCullough: Apple Is the Most Over-Owned Stock In Human History

Editor’s Note: Below is an exchange between Hedgeye CEO Keith McCullough and a reporter from London’s City A.M. who asked McCullough his thoughts on Apple, tech stocks, and whether we’re in another bubble. To read the original City A.M. article click here.

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1. Do you think Apple and tech stocks in general are overvalued?

A) Apple isn’t a value stock – it’s the most over-owned stock in human history where “valuation” comes into the debate on down days. It’s actually a product-cycle stock, and all cycle stocks should look relatively “cheap” at the peak of a cycle

B) What Morgan Stanley calls “New Tech” trades at an average P/E of 149.5x forward earnings. Overvalued is an understatement. It’s obviously a bubble.

2. Is there potential for tech firms across the world to lose a lot of value?

Yes.

If/when product cycles slow, multiples compress. Most people don’t realize that advertising is a #LateCycle revenue gainer. As the economic cycle slows, advertising slows – and so will some “social tech” ad revenues.

3. In Europe there was a big drop across equity markets today, driven largely by tech performances - do you see this potentially continuing? Is there a risk to European and Asian tech stemming from Apple and other US stocks' performances?

Yes.

#EuropeSlowing is a Top 3 Global Macro Theme @Hedgeye right now. Consensus is confusing the political panic in Europe with the causal factor that is economic growth slowing. “Old” (or Industrial) Tech is slowing as the global cycle does.

4. Is this another tech bubble? Does this look like the dotcom bubble?

Yes (see above).

Across market histories, from tulips to dot.bombs, every bubble is unique. Instead of the internet, I think we’ll call this one the cloud of expectations.

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